Sunday, February 20, 2011

The situation in Wisconsin is really touching a nerve with me. Governor Walker (R) was elected as part of the Republican victory in 2010. He is now proposing a combination of policies that the country recognizes as a preview of things to come for many state governments. In his first month in office, Governor Walker pushed through a package of tax cuts for corporations. Wisconsin's corporate tax rates are comparable or below those of their main neighbors: Illinois, Minnesota, and Iowa (Wisconsin and Michigan share a border along the base of the Upper Peninsula but this is a sparsely populated part of Michigan that depends largely on mining which cannot relocated because of tax rates). Wisconsin's personal income tax rates are slightly higher than those in Illinois and Iowa but somewhat lower than those in Minnesota. Wisconsin's sales taxes are lower than those of Illinois, Iowa and Minnesota. I go through these comparisons to suggest that Wisconsin's citizens are not excessively taxed. Wisconsin's tax rates are comparable especially to its neighbors. This is important because a major argument that state leaders put forward for cutting taxes - especially on businesses is to encourage new businesses to relocate to their state and deter old businesses from relocating out of their state. My brief survey of Wisconsin tax rates suggests that this probably not a major problem for the Badger State.

Now, there is a recession on as you know. So by cutting taxes on corporations, Governor Walker is worsening his state's revenue short fall problem. This brings us to the other part of his policy agenda. Walker is proposing significant cuts to public employee benefits and a dramatic curtailment of public employee unions right to collectively bargain. The implication of his rhetoric and policies is that the public sector is over paid at the expense of a long suffering private sector. Walker's proposals have provoked a bitter fight. Wisconsin Democrats have left the state to prevent a quorum in the legislature. Public employees and union activists and sympathizers have hit the streets. Tea Party counter protesters soon followed. The newly elected Republican governor of Iowa is making exactly the same noises and a similar fight is coming for Iowans along with many other states.

But are public employees really over paid?? US West posted about this earlier but it bears repeating. Public employees are not paid more than their private sector counter parts with similar qualifications and responsibilities. In fact, they are paid significantly LESS than their private sector counter parts. In fact, the gap between private and public salaries increases as the qualifications expected of the worker go up. At the level of high school graduates, public employees make about 97% of their private sector counterparts. For college graduates public employees make just 75% of their private sector counterparts. Once you get to the level of professional employees (people with JDs, MDs, and PhDs), public employees make just 63% of the salaries awarded to their private sector counterparts. The only thing that public employees can point to that compensates them somewhat for this gap is their benefits packages. Public employees do tend to have good health and retirement packages that are seen as more secure than those operated by many companies because they are guaranteed by democratically accountable state governments rather than by corporations prone to rob their pension funds as they sink into bankruptcy.

I really hope the Democrats and the unions in Wisconsin can stand up to this. And I'm very glad that President Obama called this for what it is, an assault on unions. But it is also part of a broader assault on non-military public employees.

UPDATE (2/21): I found this video online of a Wisconsin Democratic legislator angrily describing the tricks that the Republicans have been using to ram through the Walker budget bill. What he is describing is tyranny of the majority.

12 comments:

USwest
said...

This is a huge assault on the American middle class. The only sector other than the auto industry that has serious union representation is public employees. And every time there is financial crisis or economic downturn, union members get demonized.

The Republicans are trying to kill any voice that speaks for the middle class. They want Ayn Rand capitalism. That has not changed. They want to bleed public coffers and hand it all over the business. That is the agenda. They themselves do pretty well out of that bargain because they get huge political donations from these same businesses.

If this succeeds in Wisconsin, I will be ready to "go Cairo". Unions have historically had their problems and their drawbacks. But Unions provided organized civil society that represented a strong middle class. The unions made the middle class. And the fact that only 6% of American workers today are part of a union has made them so irrelevant that businesses have run roughshod over workers. In the past, all workers benefited from unions even if they weren't members. Now, unions do not matter much to anyone because they have been gutted. Part of it is their own fault because they have not evolved and changed to fit the new economy.

Businesses, with the help of Republicans, have convinced Americans that job stability is a vice, and that expecting a fair retirement is an evil entitlement that weakens the economy. Unions have made huge concessions, and yet are still hated. Thus, the conservative media campaign against the civil service and the public sector.

I think we will have to start having huge demonstrations in front of large corporations HQs, pitching tents out front. We should start to build new, modern unions that represent modern workers and professionals.

Germany has long had a very corporatist model where unions business, and government are all part of negotiations and regulations and the result has been a pretty solid middle class, and a strong export sector, even in times of high unemployment. RBR, can you discuss this model, it's pros and cons and if this is something that would benefit the US?

I sympathize with your admiration for the German model. But I don't think it be a practical goal in the US system. Both our unions and employers are simply too disorganized.

The pros of the German style (similar to the Scandinavian model) of industrial relations is that it is based on centralized wage bargaining. There are big organizations that represent most if not nearly all workers that negotiate with big organizations that represent most if not nearly all employers for the bases of labor contracts. This enables a remarkable degree of labor market stability and prevents productivity losses due to labor disputes.

The disadvantages are that part of the reason the labor market is so stable is because it is very difficult for employers to lay workers off. The result is that they are extremely reluctant to invest in new workers until they are 100% sure they will need them for a long time. Germany frequently runs unemployment rates that are comparable to the unemployment rates we've seen in the last couple of years. Our unemployment rate is higher now but the usual state of affairs is that Germany's unemployment rate is higher than (sometimes even about double) the US rate.

I think the best strategy for US unions is to do what they have always done, fight for benefits on a contract by contract basis. The difference now is that a state government is making a simultaneous all out assault on all the unions at once.

The single best thing that middle class people can do to preserve what's left of their life styles is to vote for Democrats - and only Democrats.

RBR, it's hard for US employers (the civil service especially) to get rid of poor performers. This is why there is so much "temp" help hired and use of independent contractors. This further erodes collective rights of workers. In addition, because our businesses must show profit on a quarter by quarter basis, they are afraid to hire workers who will be hard to get rid of later. Thus, the "flexible" labor market in this country really only benefits one group, the CEOs.

We have become a nation of lawyers, not laws. The result is organizations are afraid to fire, discipline, or do much else to problem employees. EEO complaints, law suits, the like. At least with unions, you can have arbitration. So I am not so sure the German model's drawback- as you have outlined- is any worse than what we currently have.

The problems of the German model aren't such that similar problems that we have here wouldn't be made even worse by adopting the German model.

The data shows pretty clearly that German workers get better benefits IF they get a job. But unemployment in the German system, especially for younger workers, is very high and is nearly always higher there than here.

But all that is moot, really, because the organizational structures simply don't exist to transplant the German model to this country.

Of course labor is only half the equation. In Germany there is a centralized employers' confederation to negotiate with. Even if US labor organizations were sufficiently organized and centralized to play the kind of role that the big German (or Danish or Swedish) unions play, they have no counterpart on the employers' side of the table.

Let me clarify, that I don't believe in perfect policies that have no problems. And all else equal, I'd rather have Germany's problems than the problems we have here. But sometimes we don't get to pick which problems we choose from.

"We have become a nation of lawyers, not laws." As a lawyer, I often like to say "Lawyers don't sue people; people sue people." The real problem is that liability insurance companies settle almost any lawsuit and then just charge it in premiums. That encourages lawsuits. The other problem is that violations of the law are massive and ongoing. Read 'Nickel and Dimed' to get a sense of what this is like. Businesses routinely violate basic labor protections because no unions exist to keep them in check and many employees don't know the rules or are too scared to complain. Those who get fired stop being scared and sue. Businesses have created the litigation problem through a combination of constant violations of all kinds of laws, plus insurance companies settling even baseless lawsuits for money.

That has been my point in defending civil servants. We should be holding the public sector up as an example of what has been taken away from the average worker.

Interesting point about the insurance companies and lawsuits.

I am a little off on lawyers at the moment due to the injustices some my of employees have dealt with because they lacked the money needed to really take their cases to court. In one case, it is a misguided, over-zealous, careerist public prosecutor, in the other it was just bad advice about how to avoid a bankruptcy. Both people have been severely and unjustly harmed as a result. Neither ever got their "day in court" so to speak. But that is for another thread.

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